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Asymmetric loss utility: an analysis of decision under risk

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  • Alex Strashny

Abstract

This paper develops a utility model for evaluating lotteries. In estimating utility, risk averse people use an asymmetric loss function. Expected utility is seen as a special case that is a good approximation in some cases. The model resolves several paradoxes and makes easily falsifiable predictions. When used in hypothesis testing, the model allows researchers to directly specify their attitudes toward risk.

Suggested Citation

  • Alex Strashny, 2004. "Asymmetric loss utility: an analysis of decision under risk," Game Theory and Information 0401006, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpga:0401006
    Note: Type of Document - pdf / TeX; prepared on Win; pages: 21; figures: 3
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/game/papers/0401/0401006.pdf
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    References listed on IDEAS

    as
    1. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
    2. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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